Page 102 - Nuvama | IC Report 2023

• MANUFACTURING • NEW ENERGY • URBANISATION • CONSUMPTION PREMIUMISATION • EQUITY SAVINGS CULT

As we argue in Demography, China managed to put its young working force to productive use and
hence reaped significant growth. During this time, there was a major pull effect on people living in rural
areas to shift to urban areas or manufacturing centres.
Urbanisation as a driver of specialisation

Urban areas tend to become specialised. In China, coastal cities became manufacturing powerhouses
as the economy increasingly became export-oriented. Capex, new factories and employment
opportunities sprung up in these areas. Subsequently, urbanisation jumped.
In India too, cities are specialised. For example, Bengaluru is known for its IT and tech dominance while
much of the financial services industry is based out of Mumbai. Gujarat is home to Industrial areas and
clusters that specialise in gems & jewelry manufacturing while textile hubs are dominant in Tamil Nadu.
Second-order benefits underappreciated

In addition to being a conduit for economic growth, urbanisation brings out several other positive
externalities. As mentioned earlier, urban areas are essentially large agglomerations with a high
population density. This scale, network and convenience flows through to all economic agents.
• For firms, ready and proximate availability of workers combined with access to better infrastructure
(roads, communications, etc) is enabling.
• For workers, prospects are better due to employment opportunities, network, upward mobility,
and pay (compared to rural). The information flow arising from network effects is a good breeding
ground for entrepreneurship.
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Exhibit 7:
Quality of
education
improves with 100
urbanisation (Urbanisation rate, %) 80

60

40

20

0
300 350 400 450 500 550
Global average test scores
Source: World development indicators, World Bank, Nuvama Research
100